In Washington, a US official said the decline was evidence of the success of the international sanctions over Iran's nuclear programme.

"From our perspective this speaks to the unrelenting and increasingly successful international pressure that we are all bringing to bear on the Iranian economy. It's under incredible strain," a top State Department official said.

The currency, the rial, weakened to 34,700 to the dollar by the end of the day's trading, according to the Mesghal.com website, a drop of 17 per cent compared to the previous day's rate of 29,600.

The Mehr news agency said the rial fell 18 per cent to 35,000.

The rial has lost more than 80 per cent of its value compared with the end of last year, when it was worth 13,000 to the dollar.

Visitors to the money-changing area in central Tehran said registered dealers were no longer selling dollars in their shops, leaving the market to informal traders in the street – a situation resulting in dollars becoming scarce and thus much more expensive.

Iran is suffering heightened geopolitical tensions over its nuclear programme and the effects of draconian Western economic sanctions curbing access to its reduced oil exports.

It also is burdened with high inflation and rising unemployment.

The rial's plunge on Monday was largely censored online.

Websites that usually give real-time currency data, such as Mazanex.com, had the dollar rate for the rial blanked out. The Iranian-hosted version of Mesghal (mesghal.ir) disappeared halfway through the day to be replaced with the message "Account Suspended".

The fall sent a shock through Iranian companies.

"It's a disaster," a manager of a business in Iran's import sector told AFP on condition of anonymity. "One business lady was really crying, she was losing millions of dollars."

On the political front, US State Department spokeswoman Victoria Nuland said: "The currency is plummeting and firms all over the world are refusing to do business with Iranian companies.

"These are the most punishing sanctions we have ever been able to amass as an international community and they are very important for trying to get Iran's attention on the important denuclearisation work."

The Fars news agency said money changers in Tehran were hoarding dollars.

"We do not know what will happen in the coming days, we do not know what the government will do," it quoted one money changer saying.

The official news agency IRNA quoted a spokesman for Iran's money changers' association, Nosrat Ezzati, as saying the latest rates for the rial "are artificial as no real exchange is happening in the market."

While Western sanctions curbing Iran's ability to export oil or to make financial transactions abroad were certainly having an impact, blame for the situation was also being put on economic mismanagement.

The government has in recent weeks excluded almost all importers from buying dollars at its official rate of 12,260 rials per dollar, encouraging them instead to use a new "exchange centre" where the rate was fixed daily at a small discount to the open-market rate. That has sharply increased consumer prices and spurred the rial's fall.

But he stressed "there is also the issue of speculation ... this is a bubble which is rooted in the operation of the exchange centre."

Mahmoud Bahmani, the head of Iran's central bank, was quoted by the ISNA news agency as predicting: "The effects of the foreign exchange trading centre will gradually emerge in the free exchange prices."

Ordinary Iranians are increasingly struggling with the resulting inflation, which was officially put at 23 per cent even before the latest plunge of the rial.

"Prices are rising every day and it just doesn't stop," said Khosro, a retiree who gave only his first name. He was forced to work as a taxi driver to boost his diminishing pension, he said.

Even locally made products were becoming more costly in Iran's supermarkets.

"The price of my toothpaste, a foreign brand, has tripled in just a few months. Now, I'm buying an Iranian one, but it has also nearly doubled in price," said Maryam, a young shopper.